An investor's outlook on Iraq in 2022
Pat Cline is an investment advisor at Five One Invest in Iraq
Although the past two years have been tumultuous economically, the Iraqi entrepreneurial scene has not slowed down. In 2021 alone, we had several six-figure investment deals (Hi-Express, Orisdi, and KESK) and two seven-figure investment deals (Alsaree3/Zajel and Miswag), the launch of multiple institutional funds, an increase in SME support initiatives, the establishment of startup focused co-working spaces, and the continuation of international interest in the market. Our team at Five One Labs looks forward to seeing continued ecosystem development as entrepreneurs and support organisations continue to flourish in 2022.
So what specifically can we expect from the ecosystem, stakeholders, and regional players in 2022?
Increased investor appetite
With the establishment of two venture funds last year, Euphrates Ventures (EV) and Iraq Venture Partners (IVP), we expect that there will be more money available than ever before in the Iraqi market. Both of these institutional funds will back early- and growth-stage tech and tech-enabled startups, which have historically been almost entirely overlooked or misunderstood by investors in Iraq, across a variety of sectors. Of course, there will be other financing initiatives, such as the ILO Financial Initiative, and the IFC’s blended finance facility, but we are particularly interested in the deployment of institutional money this year. We are keeping a close eye on angel investors, because they will play a vital role as first capital, but there’s typically less visibility into these groups in any ecosystem.
More competitive markets
This money is arriving at a critical juncture for local startups, because we saw several well-funded international players enter the market, particularly in the second half of 2021. Companies such as ZoodPay , the BNPL super app, and Talabat, the food and grocery delivery company already in nine countries across the Middle East and North Africa (Mena) region, entered the market in 2021 and will put pressure on local competitors. These are just two examples, and there’s every indication that more entrants are soon to follow their lead. While these international players may be good for consumers in terms of providing greater choice and lower prices, Iraqi incumbents will feel the pressure. Increased funding opportunities will provide local companies with the fuel to compete in this rapidly changing landscape.
These new entrants will also accelerate the already intense scramble for talent. In announcing its Baghdad launch, ZoodPay began recruiting over 100 employees to support its expansion. Some of these jobs will undoubtedly be lower skill work, but the need for top end tech talent is only going to increase. Universities, in particular, need to expand and enhance their offerings in information technology and computer science, as well as entrepreneurship and innovation offerings, and local entrepreneurship support organisations need to ramp up for this new reality as well.
A great deal of attention gets paid to e-commerce and logistics in Iraq, because that is where the majority of the investment money has gone historically and is still currently going, but we are seeing exciting work in other areas. As we look across our own programming at Five One Labs in both our incubator and accelerator services programme, we have noticed a proliferation of verticals over the past eighteen months. We, and others such as Takween Accelerator and Kapita, are supporting and developing companies in other sectors such as services technology, healthtech, nutrition and wellness, food, and fintech. There has also been a slight shift in investor attention from e-commerce businesses to other successful tech startups - EV invested in cleantech startup, KESK, in 2021 and the healthtech startup Razi (formerly Tabib Baghdad), received investment from the Iraqi Angel Investors Network (IAIN) in 2020. We look forward to promoting this diversification of the startup landscape in our programmatic work as well as supporting investor interest across a greater number of sectors.
Kickstarting the private sector
Finally, when we think about the entire ecosystem’s development, we know that we will eventually need the participation and support of the private sector as well as the government. The private sector will be more significantly challenged by agile tech startups and by the fast pace of innovative technology and companies, but the upside is that there should be more strategic investment and partnership opportunities. In the Mena region there has been a spread of interest in entrepreneurship with “traditional business model” businesses such as Saudi Aramco and Chalhoub Group. Such businesses have established their own accelerator and incubator programmes, for example, in a bid to diversify their investments and/or to supplement and digitise their business units. We envisage that this trend of corporate venture capital will eventually pique the interest of Iraq’s private sector players; we were very interested to see 2022 kick off with Korek’s $5 million investment in TipTop.
Public sector initiatives
In addition to private sector initiatives, the public sector will need to start moving the discussion forward when it comes to regulatory and policy changes. In the next few years, and preferably sooner, much needed changes in areas such as the business registration process, tax structure, and policies and procedures for investors will need to be codified to promote further entrepreneurial development. The government has a tremendous opportunity to expedite the existing momentum in the private sector and ameliorate the youth unemployment problem, among other benefits. Our team recently saw the government’s interest in reforms firsthand when we ran a participatory process to rethink the business registration process in the Kurdistan Region of Iraq (KRI). The process, which was supported by the Dutch Consulate and the Netherlands Enterprise Agency, resulted in a policy brief that was presented to the Prime Minister of the KRI’s office for review.
As you can see, 2022 is indeed shaping up to be an exciting year. The entrepreneurial ecosystem has come a long way over the past several years in Iraq, but there’s definitely more work to do!